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Apr 17, 2013 11:36 AM IST | Source:

Reliance Industries down 2% on Q4 revenue decline

Reliance Industries reported a 32 percent year-on-year growth in net profit for the quarter ended March, even as revenues declined 1.4 percent. For the full year, the company‘s revenues rose 9.2 percent and net profit by 4.8 percent. Here is what analysts have to say on their outlook for the stock after the latest set of earnings numbers:

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Moneycontrol Bureau

Reliance Industries' shares declined over 2 percent to Rs 787.60 after its Q4 revenues declined 1.4 percent, while profit grew 32 percent year-on-year.

However, even as Reliance Industries (RIL) posted a significant year-on-year rise in its March quarter profit boosted by higher other income and an improvement in gross refining margin, it's exploration and production division may continue to be a drag in ensuing quarters, say analysts.

Analysts who met RIL management post Q4 earnings announcement said there is no news on further exploration in KG-D6. Currently, volumes are already low at around 16 million standard cubic metres per day (mmscmd) and there will not be any meaningful impact on overall profitability even if volumes improve slightly going ahead.

Petchem vertical's Q4 performance was also slightly disappointing due to pressure in domestic polyester margins, the management has re-iterated spending USD 12 billion across petchem and refining segments

Gross refining margins (GRMs), the difference between the cost of processing crude and value of finished petroleum products sold, rose to USD 10.1/bbl from USD 7.6/bbl YoY, led by improved diesel and petrol margins. This more than doubled the operating profit for the refining and marketing segment to Rs 3520 crore. However, the company may find it difficult to sustain margins due to threat of cheaper imports.

Going ahead, will RIL's new businesses impact bottomline?
RIL has already invested about Rs 9500 crore in retail business and
Around USD 570 crore in shale gas business. The combined FY13 EBITDA of the two businesses is around  USD 48.3 crore or just about 6.5 percent of the invested capital. The retail business turned positive at the EBITDA level in FY13 but continues to have negative net income. The shale gas business reported net income of USD 7.2 crore for FY13. The two businesses are growing but will not contribute significantly to bottomline so soon.

Meanwhile, shares of the company declined over 2 percent to Rs 787.60 post Q4 earnings announcement.

Stock watch

Jefferies has assigned a 'hold' rating on the stock with a target price of Rs 814 based after factoring in lower KG-D6 volumes and likely poor show from petchem business till FY14-15.

Morgan Stanley is 'overweight' on the stock and has stated that while lower KG-D6 output has already been factored in. increased contribution from shale gas and petchem division should drive FY14 earnings.

HSBC is 'underweight' on the stock with a target price of Rs 835. Significant discovery in exploratory wells or an approval of a higher gas price that the current assumption could boost stock performance, it said

Barclays has assigned  'equal' weight’ to the stock with a target price of Rs 870. Near term earnings may be sluggish on lower gas output, it said.

Goldman Sachs has a 'buy' on the stock with a target of Rs 1070. We continue to believe that RIL's major capex in core segments will lead to a structural improvement in its margins and cash returns over the medium term, it said

Read This: RIL Q4 net up 32% on robust refining margins, sales slide

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